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UPDATE: Bank Of America Upgrades Kate Spade

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Heather Balsky of Bank of America upgraded shares of Kate Spade & Co (NYSE: KATE) to Buy from Neutral on Monday with a price target raised to $34 from a previous $33.

“Based on our handbag survey results, we think Kate Spade can offset fewer markdown sales with greater full price sell-through, and continue to post comp and earnings beats,” Balsky wrote in a note to clients.

The analyst adds that a projected 45 percent growth outlook on higher comp and margins are not currently factored in to share prices and that the company can see “robust” comp growth as promotions decline.

According to an internal consumer survey, Balsky concluded that fewer Kate Spade customers seek deals and promotions as purchasing an item with a superior fashion and design is more important. The analyst adds that the consumer survey helps to explain the company's third-quarter 15 percent comp gain, despite less discounting and ongoing weak mall traffic.

Balsky expects the habits of Kate Spade consumers to continue in to 2015. The analyst is modelling 16 percent comps in fiscal 2015, above the consensus estimate of 13.5 percent.

Looking further, the analyst expects fiscal 2016 adjusted EBITDA margins to improve an additional 550 basis points to 18.2 percent from fiscal 2014 estimates. Within the next five years, the analyst expects margins to reach the low 20s.

Posted-In: Bank of America Consumers Heather Balsky Kate SpadeAnalyst Color Upgrades Price Target Analyst Ratings

 

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